Europe, Trapped Between U.S. Protectionism And Chinese Ambition

MUNICH — As far as industrial strategies and international competition are concerned, there’s no greater contrast than that between Europe's resignation and China's iron determination. It’s not surprising that it was China — and not Europe — that proposed to form an alliance against Trump's raving protectionist madness. With little success: Even Washington's harassment cannot pull European politicians out of their slumber — or, more likely, their afternoon nap.

Hardly a week goes by without more alarming news that Beijing has once again managed to overtake Brussels in yet another area. China Merchants Group joined forces with SPF Group and Centricus — asset management companies based in Beijing and London — to form a $15-billion fund to compete with Japan’s Softbank and its $100-billion Vision Fund. It was founded to invest in the world's most promising technology companies. This happened a few weeks after Sequoia Capital, America's leading venture capital firm, completed the first round of fundraising for its own $8-billion alternative to Vision Fund.

Contemporary Amperex Technology, one of China's largest manufacturers of lithium-ion batteries and a beneficiary of the government's quest for world domination in this industry, signed a billion-euro deal with German car-manufacturer BMW shortly afterward. The Chinese company’s intention is to establish its own factory in Europe in order to meet the rapidly increasing demand for batteries. Daimler, another crown jewel of the German car industry, is now reportedly considering placing a similar order.

The Bolloré Group, one of France's leading conglomerates in the media, energy and logistics industries, has signed an agreement with China's technology giant Alibaba. Bolloré hopes to use Alibaba's cloud computing empire for its operations, including its own battery production department.

These developments can be interpreted as neutral, or even as positive. European capital — British in the first case, German in the second, French in the third — simply seizes the opportunities for the most lucrative prospects. And China currently offers more than any other nation.

Nevertheless, each of these three developments reveals a big hole in Europe's own industrial strategy. It’s one thing for European capital to be invested only passively in the most promising projects in robotics or AI. Daimler, for example, is one of the few European sponsors of Softbank’s Vision Fund. But it’s quite a different thing to do so with the end goal of seeing Europe dominate these areas.

The European Commission's artificial intelligence strategy published in April is based on the unverified assumption that Brussels will be able to raise almost 18 billion euros in private capital to add to the few billion from existing European programs. This, however, requires convincing companies like Daimler — whose largest shareholder today is Geely from China — that their investments should go to a European tech fund instead of Softbank or China Merchants Group.

This dependence was easier to justify when global trade was still running smoothly.

This challenge is similar to Europe's unsuccessful efforts to get the European industry to build a joint European battery manufacturer for electric cars in order to minimize dependence on China and South Korea. The European Battery Alliance, an industry-wide initiative launched by the European Union, was established last year but has not yet borne fruit. European politicians seem to recognize the battery challenge, as do Germany's strongest trade unions. But how will this problem ever be solved if companies such as BMW and Daimler continue to place orders worth billions with Chinese battery manufacturers?

The history of cloud computing, which is increasingly linked to AI services, is not much different. Even if the European industry wanted to turn its back on Amazon and Microsoft to use a European supplier instead, it wouldn’t have much choice. Basically, it’s trapped between the American and the Chinese giants.

This dependence was easier to justify when global trade was still running smoothly and all industries looked similar (that is, equally unimportant from the perspective of national or regional interests). Now that the European car industry is under heavy fire from Trump, Brussels is extremely cautious in its reaction.

If Trump threatens Europe's most important industry, the logical response would be to threaten a retaliatory response against America's most important industry, which — whatever Trump may believe — is located in Silicon Valley and Seattle, not Detroit.

But that’s not an option: No one will believe that the same Europe that has integrated Alphabet, IBM, Microsoft and Amazon services deeply into the infrastructure of its hospitals, transport systems and universities will switch off those very services. The best thing Europe can hope for at the moment is simply to diversify its dependence on the U.S. giants by doing business with the Chinese.

None of these are good signs for a future Europe at the heart of the world economy. Its industry giants certainly won’t disappear, but they will increasingly be dominated by non-European owners and technologies. While this might have been praiseworthy in the rosier days of globalization, this strategy borders on suicide in the new normal of today. That is why that proverbial afternoon nap European politicians are taking increasingly looks like a coma.